Long-term unemployment in the United States should fall toward its pre-recession level as the recovery proceeds, new Federal Reserve research has concluded, the latest entry in one of the United States' central economic debates.
In a pair of papers released on Monday, Fed research economist Christopher Smith analyzed state-level data and found that long-term unemployment rates were edging down in states where short-term unemployment was approaching or had already dropped below pre-recession levels.
He also found the level of long-term joblessness in a state was as closely tied to wage rates as the level of short-term unemployment.
Both issues are under intense debate at the U.S. central bank as officials try to determine the level of "slack" in the nation's labor market - and whether there is likely to be pressure on wages, and thus inflation, in the near future.
If the long-term unemployed are likely lost to the labor force, as Princeton University economist and former White House adviser Alan Krueger recently argued, then the supply of workers may be smaller than it appears and wage pressures are likely to develop more quickly.
Fed Chair Janet Yellen has argued the opposite.
Even if the level of long-term unemployment remains elevated, Smith wrote that his analysis indicated that in states where the short-term unemployment rate was dropping most quickly, long-term unemployment was also falling. He found that occurrence was more often due to the long-term unemployed finding jobs than because they were dropping out of the labor force.
It is "likely that additional improvements ... are possible" in the level of long-term unemployment, and that the number of long-term unemployed as a share of total unemployment should "normalize" at levels found before the 2007-09 recession, he wrote.
Long-term unemployment is defined as joblessness of more than 26 consecutive weeks. As a share of total unemployment, it spiked during the recession, from below 20 percent to around 45 percent. The number has since edged down to around 36 percent, and there is intense debate about the degree to which this still-elevated level will provide a damper on wage gains.
Smith looked at state-level data over time and found short-term and long-term unemployment had a similar impact on wages.
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